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Customer Loyalty and Retention

*Slides are based on content of Services Marketing -K.D.Hoffman & J.E.G.Bateson and Services Marketing by V.A.Zeitmal & M.J.Bitner
 What Is Customer Loyalty?

• Customer loyalty: reflects an emotional attachment as

well as a business attachment to the service firm
• Customer loyalty is a deeper conviction to the firm than
pure retention alone
• Customer satisfaction does not always equate to
customer retention
– Consider cases where:
• Customers are not satisfied, yet they are retained
• Customers are satisfied, yet they defect to competitive offerings

*Slides are based on content of Services Marketing -K.D.Hoffman & J.E.G.Bateson and Services Marketing by V.A.Zeitmal & M.J.Bitner
 Strategies for Cultivating
Customer Loyalty
• Developing a proper perspective
• Staying in touch
• Providing discretionary effort
• Leading through top-down loyalty
• Training and empowering employees
• Providing incentives
• Remembering your customers’ purchases

*Slides are based on content of Services Marketing -K.D.Hoffman & J.E.G.Bateson and Services Marketing by V.A.Zeitmal & M.J.Bitner
 Strategies for Cultivating
Customer Loyalty (cont’d)
• Building trust through reliability
• Flexibility
• Replace technology with humans
• Be great with names
• Being available when you’re needed the
most

*Slides are based on content of Services Marketing -K.D.Hoffman & J.E.G.Bateson and Services Marketing by V.A.Zeitmal & M.J.Bitner
 What Is Customer Retention?

• Focuses the firm’s marketing efforts toward

current customers
• The opposite of conquest marketing

*Slides are based on content of Services Marketing -K.D.Hoffman & J.E.G.Bateson and Services Marketing by V.A.Zeitmal & M.J.Bitner
 The Importance of
Customer Retention
• Markets are stagnant
– In many places, population growth has slowed
• Consequently, there are not as many new customers as there once
were, and those customers who do exist are in many cases spending
less
• Increase in competition
– Relative parity and lack of differential advantage of goods and
services on the market
– Deregulated industries that now must compete for customers in
an open market
– The growth of online alternatives
– Accessible market information that is available to more firms

*Slides are based on content of Services Marketing -K.D.Hoffman & J.E.G.Bateson and Services Marketing by V.A.Zeitmal & M.J.Bitner
 The Importance of
Customer Retention (cont’d)
• Rising costs of marketing
– Increase in the cost of mass marketing advertising
– Loss of “share of voice”
• Changes in the channels of distribution
– Distance marketing
– Use of market intermediaries
• Today’s customers have changed
– Compared with past generations, typical customers today:
• Are more informed about purchasing decisions
• Are increasingly skeptical about the average firm’s concern for their business
• Command more discretionary income

*Slides are based on content of Services Marketing -K.D.Hoffman & J.E.G.Bateson and Services Marketing by V.A.Zeitmal & M.J.Bitner
 The Benefits of
Customer Retention
• Profits derived from sales
– Repeat customers are more willing to pay more for purchases and
purchase more often in situations where the uncertainty of the outcome
is lessened or removed
– Reducing defections can have a profound effect on a firm’s profitability
• Profits from reduced operating costs
– It is three to five times cheaper to keep a customer than to recruit a new
one
– Long-term customers tend to have lower maintenance costs
• Profits from referrals
– Satisfied customers often refer businesses to their friends and family

*Slides are based on content of Services Marketing -K.D.Hoffman & J.E.G.Bateson and Services Marketing by V.A.Zeitmal & M.J.Bitner
 Why Customers Are More Profitable
Over Time

*Slides are based on content of Services Marketing -K.D.Hoffman & J.E.G.Bateson and Services Marketing by V.A.Zeitmal & M.J.Bitner
 Why E-Shoppers Come Back

*Slides are based on content of Services Marketing -K.D.Hoffman & J.E.G.Bateson and Services Marketing by V.A.Zeitmal & M.J.Bitner
 Determining the Lifetime
Value of a Customer
• Lifetime value (LTV) of a customer
Average Lifetime Value = (Average Sale) × (Estimated
Number of Times Customers Reorder)
• Lifetime profit (LTP) of a customer
Average Profit Value = (Average Profit per Sale) ×
(Estimated Number of Times Customers Reorder)
• Customer acquisition point
Break-Even Customer Acquisition Cost = (Average
Lifetime Profit) + (Average Customer Acquisition Cost)

*Slides are based on content of Services Marketing -K.D.Hoffman & J.E.G.Bateson and Services Marketing by V.A.Zeitmal & M.J.Bitner
 Is It Always Worthwhile
to Keep a Customer?
• Guidelines for severing relationships with customers
include:
– The account is no longer profitable
– Conditions specified in the sales contract are no longer being met
– Customers are abusive to the point that it lowers employee
morale
– Customer demands are beyond reasonable, and fulfilling those
demands would result in poor service for the remaining customer
base
– The customer’s reputation is so poor that associating with the
customer tarnishes the image and reputation of the selling firm

*Slides are based on content of Services Marketing -K.D.Hoffman & J.E.G.Bateson and Services Marketing by V.A.Zeitmal & M.J.Bitner
 Customer Retention Programs

• Frequency marketing: marketing technique that strives

to make existing customers purchase more often from the
same provider
• Relationship marketing: marketing technique based on
developing long-term relationships with customers
• Aftermarketing: marketing technique that emphasizes
marketing after the initial sale has been made
• Service guarantees

*Slides are based on content of Services Marketing -K.D.Hoffman & J.E.G.Bateson and Services Marketing by V.A.Zeitmal & M.J.Bitner
 Types of Guarantees

• Unconditional guarantee: a guarantee that

promises complete customer satisfaction and, at
a minimum, a full refund or complete, no-cost
problem resolution
• Specific result guarantee: a guarantee that
applies only to specific steps or outputs in the
service delivery process
• Implicit guarantee: an unwritten, unspoken
guarantee that establishes an understanding
between the firm and its customers

*Slides are based on content of Services Marketing -K.D.Hoffman & J.E.G.Bateson and Services Marketing by V.A.Zeitmal & M.J.Bitner
 Benefits of Unconditional Guarantees

• Customer-directed benefits:
– Customers perceive they are getting a better value
– The consumer perceives the risk to be more reliable
– The guarantee helps consumers decide when comparing competing
choices; consequently, the guarantee serves as a differential advantage
– The guarantee helps in overcoming customer resistance toward making
the purchase
– The guarantee reinforces customer loyalty, increases sales, and builds
market share
– A good guarantee can overcome negative word-of-mouth advertising
– The guarantee can lead to brand recognition and differentiation;
consequently, a higher price can be commanded

*Slides are based on content of Services Marketing -K.D.Hoffman & J.E.G.Bateson and Services Marketing by V.A.Zeitmal & M.J.Bitner
 Benefits of Unconditional
Guarantees (cont’d)
• Organization-directed benefits:
– The guarantee forces the firm to focus on the customer’s
definition of good service as opposed to the firm’s own definition
– In and of itself, the guarantee states a clear performance goal that
is communicated to employees and customers
– Guarantees that are invoked provide a measurable means of
tracking poor service
– Offering the guarantee forces the firm to examine its entire
service delivery system for failure points
– The guarantee can be a source of pride and provide a motive for
team building within the firm

*Slides are based on content of Services Marketing -K.D.Hoffman & J.E.G.Bateson and Services Marketing by V.A.Zeitmal & M.J.Bitner
 Professional Service Guarantees

• Professional service guarantees are most

effective when:
– Prices are high
– The costs of a negative outcome are high
– The service is customized
– Brand recognition is difficult to achieve
– Buyer resistance is high

*Slides are based on content of Services Marketing -K.D.Hoffman & J.E.G.Bateson and Services Marketing by V.A.Zeitmal & M.J.Bitner
 Reducing Defections by 5 Percent Boosts
Profits 25 to 85 Percent

*Slides are based on content of Services Marketing -K.D.Hoffman & J.E.G.Bateson and Services Marketing by V.A.Zeitmal & M.J.Bitner
 Defection Management:
Developing a Zero Defection Culture
• Defection management: a systematic
process that actively attempts to retain
customers before they defect
• Reducing the defection rate by even 5
percent can boost profits 25 percent to 85
percent, depending on the industry

*Slides are based on content of Services Marketing -K.D.Hoffman & J.E.G.Bateson and Services Marketing by V.A.Zeitmal & M.J.Bitner
 Zero Defects versus Zero Defections

• Zero defects model

– Used in manufacturing
– Strives for no defects in goods produced
– Does not work well in the service sector
• Zero defections
– Used by service providers
– Strives for no customer defections to
competitors

*Slides are based on content of Services Marketing -K.D.Hoffman & J.E.G.Bateson and Services Marketing by V.A.Zeitmal & M.J.Bitner
 The Importance of
Defection Management
• Businesses commonly lose 15 to 20
percent of their customers each year
• Reducing customer defections is
associated with immediate payoffs

*Slides are based on content of Services Marketing -K.D.Hoffman & J.E.G.Bateson and Services Marketing by V.A.Zeitmal & M.J.Bitner
 Defector Types

• Price defectors
• Product defectors
• Service defectors
• Market defectors
• Technological defectors
• Organizational defectors

*Slides are based on content of Services Marketing -K.D.Hoffman & J.E.G.Bateson and Services Marketing by V.A.Zeitmal & M.J.Bitner